The currency sign for the new shekel ⟨ ₪ ⟩ is a combination of the first Hebrew letters of the words shekel (ש) and ẖadash (ח) (new). Alongside the shekel sign, the following abbreviations of NIS, ש"ח‎ and ش.ج‎ are also used commonly to denominate prices.

The origin of the name "shekel" (שקל‎) is from the ancient biblical currency by the same name. Shekel is any of several ancient units of weight or of currency in ancient Israel. Initially, it may have referred to a weight of barley. In ancient Israel, the shekel was known to be about 180 grains (11 grams or .35 troy ounces).

The Israeli pound (לירה ישראלית‎, "Lira Yisraelit") was the currency of the State of Israel from June 1952 until 23 February 1980, when it was replaced with the shekel on 24 February 1980. From 1955, after the Bank of Israel was established and took over the duty of issuing banknotes, only the Hebrew name was used, along with the symbol "I£".[7] The pegging to the British Pound was abolished on 1 January 1954, and in 1960, the sub-division of the Israeli pound was changed from 1000 prutot to 100 agorot.

During the 1960s, a debate over the non-Hebrew name of the Israeli currency resulted in a law ordering the Minister of Finance to change the name pound into a Hebrew name, Shekel (שקל). The law allowed the minister to decide on a proper date for the change. The law did not come into effect until February 1980, when the Israeli government decided to change the monetary system and introduce the shekel at a rate of 1 shekel = I£10.

The shekel, now known as the old shekel, was the currency of the State of Israel between 24 February 1980 and 31 December 1985. Both it and its predecessor the Israeli pound experienced frequent devaluations against foreign currencies during the 1960s and '70s. This trend culminated in the old shekel experiencing hyperinflation in the early 1980s. After inflation was contained as a result of the 1985 Economic Stabilization Plan, the new shekel was introduced, replacing the old shekel on 1 January 1986 at a rate of IS 1,000 to ₪1.

Since the economic crisis of the 1980s and the subsequent introduction of the new shekel in 1985, the Bank of Israel and the government of Israel have maintained much more careful and conservative fiscal and monetary policies, and have gradually introduced various market-based economic reforms. In addition, the signing of free trade agreements helped the Israeli economy become more competitive, while heavy investment in its industrial and scientific base allowed the country to take advantage of opportunities associated with the rise of the global knowledge economy, thus greatly increasing exports and opening new markets for its products and services. As a result of these factors, inflation has been relatively low and the country now maintains a positive balance of payments, with a current account surplus equivalent to about 3% of its GDP in 2010. Consequently, its currency has strengthened considerably, rising approximately 20% in value relative to the US dollar in the 2000s decade, thereby reversing the trend of historical weakness the Israeli currency exhibited in the decades prior.

In 1985, coins in denominations of 1 agora, 5 and 10 agorot and ₪½ and ₪1 were introduced.[13] In 1990, ₪5 coins were introduced,[14] followed by ₪10 coins in 1995.[15] Production of 1 agora pieces ceased in 1990, and they were removed from circulation on 1 April 1991.[citation needed] A ₪2 coin was introduced on 9 December 2007.[16] The 5 agorot coin, last minted in 2006, was removed from circulation on 1 January 2008.[17]

In April 2011, it was reported that new coins would be minted that would use less metal and thus lower costs. Counterfeiting would also be harder.[18] The Bank of Israel is considering dropping the word "new" on the planned coins series. If approved, this would be the first replacement of all coins since the introduction of the new shekel coins in September 1985.[19] The coins are minted by the Korea Minting and Security Printing Corporation (KOMSCO).[3]

Beginning on 4 September 1985, banknotes were introduced in denominations of ₪5, ₪10, and ₪50. An ₪1 note followed on 8 May 1986 and the ₪20 note issued on 2 April 1988 completed the family.[21] The ₪1, ₪5 and ₪10 notes used the same basic designs as the earlier IS 1000, 5000, and 10 000 notes but with the denominations altered.

In 1986, ₪100 notes were introduced, followed by ₪200 notes in 1991. The ₪1, ₪5 and ₪10 notes were later replaced by coins.

The Second series of bank notes were released in 1999, replacing the first series by 2005. A plan to issue an ₪500 banknote, carrying the portrait of Yitzhak Rabin, was announced shortly after Rabin's assassination in 1995. However, due to low inflation rates, there was no need for such a banknote and it was never issued.[22]

Jewish volunteers in World War II; a watchtower, commemorating tower and stockade settlements. The additional red text on the polypropylene note reads "60 Years of the State of Israel" in Hebrew in red ink. It was only featured in a 1.8 million limited run close to the noted anniversary and is not present on a majority of notes.(Made of polypropylene, a polymer substrate, which is superior to the regular Series B paper note with a circulation life of a few months only. The polymer note is printed by Orell Füssli Security Printing of Zürich, Switzerland.)

On 14 November 2012, the Bank of Israel announced that the new series of banknotes is in the final stages of design. The first of the new banknotes to begin circulation was in the ₪50 denomination on 16 September 2014,[26] followed by the ₪200 note on 23 December 2015.[27] The final two denominations, ₪20 and ₪100, were issued on 23 November 2017, completing the "Series C" banknote series.[28][29][30]

With the issuing of the third series, the Bank of Israel has adopted the standard English spelling of shekel and plural shekels for its currency.[31] Previously, the Bank had formally used the Hebrew transcriptions of sheqel and sheqalim (from שְׁקָלִים‎).[32]

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